NEW YORK (Reuters) - The biggest risk for investors since the end of the 2008 financial crisis has been, well, ducking risk. Not anymore, say analysts who think the easy money has been made.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., November 8, 2017. REUTERS/Brendan McDermid

Over the last nine years, investors who limited risk in their portfolios, whether stocks, corporate bonds or emerging market assets, have been punished for their squeamishness.

Since risky markets like equities hit bottom in early 2009, the U.S. benchmark S&P 500 stock index .SPX has tripled, delivering an annualized total return of 19 percent, roughly 15 percentage points a year above what the Bloomberg Barclays U.S. Aggregate bond index .BCUSA delivered.

That bull run, in U.S. stocks in particular, against a backdrop of steady economic growth, is leaving even skeptical fund managers and analysts reluctant to predict a near-term pullback, according to participants at the Reuters Global Investment 2018 Outlook Summit in New York this week.

Still, even as they advise investors to stay in the market, they also see the need to be wary of what they see as widespread complacency about valuations and be prepared for a bumpy ride in the year ahead.

The S&P 500, for example, now trades at 18 times next year’s earnings, according to Thomson Reuters data, versus a long-time average of around 15.

Stocks with small market capitalizations are even pricier still, at nearly 25 times next year’s earnings, making them more expensive than they have been 96 percent of the time over the past three decades, according to Joel Greenblatt, co-chief investment officer at Gotham Asset Management LLC.

“People and pension plans have had to put more money in the equity markets and that has been beneficial to them - so they’ve actually gotten rewarded for bad behavior,” said Avenue Capital Group LLC co-founder Marc Lasry.

“What I find amazing is that nobody believes any exogenous event is going to occur. I worry about the unexpected.”

Geopolitical risks such as a Chinese economic slowdown due to high debt levels, the North Korean missile crisis, political changes in Saudi Arabia that could disrupt Middle East oil supplies, and the outlook for the UK economy due to the Brexit decision last year are all being discounted by investors.

Markets have not been reacting normally to risk, said Michael Vranos, who oversees $6.5 billion at Ellington Management Group LLC.

“I’ve personally been surprised how the market has shrugged off all this geo-political risk,” he said.

BlackRock Inc (BLK.N) Chief Executive Larry Fink said economic growth in Europe, the U.S. and Asia is happening at the same time for the first time since the 2007-2009 global financial crisis. That is good news, but it has lulled some investors to sleep.

“The biggest risk I see in the world is this benign confidence that volatility is not creeping up,” he said.

Fund managers surveyed by Bank of America Corp (BAC.N) are wading into the stock market. The average investor they surveyed was holding only 4.4 percent of their portfolio in cash, the lowest level since 2013, as they boosted stock buying.

“Earnings are going to be okay,” said Mario Gabelli, chief executive of GAMCO Investors Inc (GBL.N).

“The business sector is feeling more confident.”

The U.S. stock market in particular has also benefited this year from expectations for a tax overhaul promised by President Trump.

Bond fund managers at the Reuters Global Investment 2018 Outlook Summit said this week that while they were mindful the yield curve touched its flattest level in a decade last week, they saw a remote chance of a recession as the jobs market had improved.

But the yield gap between shorter-dated and longer-dated bonds is shrinking in the United States, raising concerns among some traders over when the second-longest U.S. economic expansion in modern history will come to an end. [L1N1NJ23C]

WHAT COULD GO WRONG?

BlackRock’s Fink said an uptick in bullishness in equity markets could imperil exotic trades that are dependent on volatility staying low, leading to a broader selloff.

“It could be like a 10 percent drawdown in equities, a meaningful widening in credit spreads, but as long as the global economy continues to be as strong as it is, it will look like a traditional setback,” said Fink.

The CBOE Volatility Index .VIX, which measures the price swings expected in the S&P 500 index, has been stuck below its historical average this year, though the gauge, sometimes called the “fear index,” hit a near-three month high on Wednesday.

Nearly 50 strategists polled by Reuters expected the S&P 500 index to finish this year at 2,525, about 13 percent above 2016’s end, but more than 2.0 percent down from Thursday’s level, according to data last month.

Investors who specialize in picking low-risk investments or avoiding frothy parts of the market would welcome the return of more normal levels of volatility though.

“2017 was the year, where nothing went wrong and everything went right,” he said.

“While we think the risk of a recession over the next year is very low, we do worry about full valuations, low volatility and what we worry about most is that the fear is gone. The fear amongst investors seems to be gone for the first time in this expansion.”